Below find the latest insights on housing affordability and anticipated mortgage rate cuts for 2024 from our partners at New American Funding.
A Top-Level Summary
It’s amazing how quickly things can change. The mortgage rate environment started the year off promising, as 30-year fixed mortgage rates fell to eight-month lows. However, two unexpectedly strong economic reports later (jobs and inflation), and we find ourselves right back where rates averaged over the last quarter of 2023, with rates well into the 7s once again.
Couple rates with home prices that refuse to abate, and it means one thing: Expect the same housing affordability headwinds to remain a major issue for potential homebuyers this year.
However, just because it’s an issue doesn’t mean turning your back and waiting for a better opportunity in the future is the solution—because recent research suggests this could be the norm for quite some time. So in short, buy now.
Key Takeaways & Stats
- Only 37.7% of homes sold (new and existing) were affordable for median-income families earning $96,300 annually in Q4 of 2023. This is the lowest reading second only to Q3 of 2023 and since NAHB began tracking affordability consistently in 2012.
- The most affordable housing markets continue to be in the Midwest and parts of the Northeast where families can spend less than 20% of their income on P&I payments and stay within the generally accepted affordable range for home prices being 2.5-3x household income.
- Recent research suggests that demographic demand will continue to support upward momentum in home prices for the next 5 to 10 years with no structural demographic and supply-induced downward pressure on home prices until 20 years out.
- FHA loans have gone from 17.6% of the agency mortgage market in May 2022 to 25.2% as of November 2023, representing the highest share since May 2017. The rise in FHA loans is a direct reflection of the determination of first-time homebuyers to achieve homeownership at all costs, in addition to them and repeat homebuyers needing to reach for more flexible guidelines that allow for higher debt-to-income ratios to keep up with rising mortgage rates and home prices.
- Even repeat homebuyers, despite equity from the sale of a home are burdening themselves with restricted cash flow as the share of borrowers with greater than 43% DTI has rocketed from 28.6% in August 2020 to 47.2% in November 2023.
First Rate Cut Not Expected Until June
The Federal Reserve is faced with milestone markers through the release of two major reports: jobs and inflation. In both instances, the reports came in much hotter than anticipated forcing a correction in rates that took us from the best levels in eight months to the worst levels in more than a month.
The clear takeaway following these newly released data inputs is that market participants got ahead of themselves on the timing and amount of rate cuts that are likely to occur in the near future. In response, markets have gone from penciling in the probability of a May rate cut from 90% earlier this year to around just one-third now, moving out the likelihood of a first rate cut to June. In addition, the amount of rate cuts coming by year-end has declined from five or six to just two or three.
Simply put, the economy continues to show broad strength and higher rates are not crushing growth, which in turn is allowing the Fed to remain steadfast in its data-dependent posture.
Thinking of making a move? Explore homes for sale in your region, and contact your real estate agent for a consultation.
